Risk and Safety Stock Management in Production Planning and Inventory Control with Stochastic Demand and Yield

Abstract

Danthine and Kurmann (2006) show that efficiency wage models may generate wage rigidity when workers not only compare their wage with outside wages but also with an internal reference wage that depends on the firm's ability to pay. We modify their framework in a way that makes the external reference wage component consistent with assumptions normally made. With this generalization, we show that, although the relative weight of the internal reference wage is decisive for the degree of wage rigidity, the efficiency model already exhibits wage rigidity when this weight is rather modest.